The growing regional inequality in India

The Indian economy, which has established itself as one of the fastest growing ones in the world, is already a miracle in the midst of global slowdown. It has followed a peculiar model, especially compared with other similar, fast-growing Asian economies. The importance to the service sector, rather than manufacturing, and even that being skill-intensive, rather than labour-intensive, greatly differs from the development pattern of its Asian counterparts. However, this unique pattern of growth is not reflected throughout the nation, and has given rise to the threat of regional inequality.

Growing disparity

The contribution to GDP is higher from the peninsular states than from the hinterland states. Despite a population that nearly doubles that of Maharashtra, Uttar Pradesh’s share in the GDP is nearly half of the former. Data suggests that unemployment and illiteracy are also higher in the slow-growing states. This is very crucial, as this part of Uttar Pradesh comprises of nearly 17% of the country’s population.

After gradual decentralization, the southern states began transforming their economy into service and skill-based sectors at a lower per-capita income. This modification is clearly depicted in India’s economy, but the northern states have failed to follow it effectively. Even in the service sector, the private contribution is less dominant, which is again very distinctive with respect to other fast-growing states. Many studies suggest that the political instability and arbitrary policy-making have acted as a barrier to private investments in this region.

Jobless growth

This regional inequality is indirectly related to the current problem of a “jobless growth”. Based on the fertility rates of the expected 650 million additions to the Indian population in the coming 50 years, more than 50% of it will be in Bihar, Madhya Pradesh, Uttar Pradesh, Rajasthan, and only around 20% in Kerala, Maharashtra, Karnataka, Tamil Nadu and Andhra Pradesh. Thus, India’s huge, young labour-force comes mostly from these laggard states. Already having a major contribution to the overall GDP, the fast-growing states are drawing the growth-rate, whereas the laggard states, with rising populations, are intensifying unemployment.

Need for manufacturing

The Indian states are large and diverse, and it appears that the relatively fast-growing peninsular states resemble developed economies in their pattern, while the hinterland ones, with less-educated populations, may not be able to incorporate the same type of growth. This implies that the slow-developing states have to follow the traditional economic model, with the first stage being the labour-intensive one of manufacturing, and then towards a more service-oriented approach, similar to the South-East Asian economies. The growth in manufacturing to provide mass employment, especially for unskilled labourers, has already been well considered in the economic policies, but no significant focus has been directed towards the slow-growing states. The recent infrastructural investment projects, FDI inflows are also mainly concentrated in the peninsular region.

An exports-driven approach

The increasing Chinese wages, and an ageing population, gives India an opportunity to turn to labour-intensive industries. However, in the era of growing protectionism and global economic slowdown, this export-driven path has a major setback. The peninsular states, having major contributions to the IT and BPO industries, are already facing the wrath of such policies being carried out in the EU and the US. It is more likely that these states will try to improve their economy through labour industries, and gain an upper hand over the laggard states, considering their business environment and better infrastructure. Other major hurdles for this approach are the stringent labour laws, and the lack of physical infrastructure.

The way ahead

These lagging states do have an edge, owing to their large, low-cost labour, which attracts investments in labour-intensive manufacturing and agribusiness. By decreasing imports, this can help achieve overall trade surplus. Thus, the first priority should be to rapidly develop human resources, and provide a healthy business environment with quality infrastructure in these states. It is important to incorporate the required changes in the development pattern by considering the underperformance of some states. Without realising the full potential of every region, and neglecting overall demographical development, it will be difficult for India to achieve a long-term, sustainable economic growth. As rightly pointed out by the mathematician Jack Kemp, “Economic growth doesn’t mean anything if it leaves people out”.